Image courtesy of 123rf.

When BlackRock filed for iShares Bitcoin Trust on June 15th, the market received it as a landmark move that is manifesting in multiple ways. Bitcoin’s price climbed by 18% since the filing, from $25.5k to $30.2k. 

This was expected given BlackRock’s stature as the world’s largest asset manager, at $9 trillion AuM. Not only is BlackRock large, but it crosses the boundary between politics and finance with its ESG (environmental, social, and corporate governance) initiative, which typically views proof-of-work blockchains negatively.

Correspondingly, BlackRock is in the process of breaking down the remaining psychological barriers for institutional investing, with Bitcoin having gone from “index of money laundering” and “carbon intensive” to a spot-traded exchange-traded fund (ETF).

Nearly all BlackRock applications with the SEC have been approved, so the same is expected of iShares Bitcoin Trust. Projected capital inflows are already boosting Grayscale Bitcoin Trust (GBTC).

GBTC Up 36%

Initially launched in 2013 as Bitcoin Investment Trust (BIT), Grayscale Bitcoin Trust (GBTC) has been the closest to an exchange-traded fund (ETF). The fund holds 626.14k BTC, making it the world’s largest Bitcoin fund. The concept behind it is to expose investors to Bitcoin’s price moves without directly having it. 

This means that GBTC allows indirect BTC trading, similar to the stock market, through the over-the-counter (OTC) market. That’s because the Securities and Exchange Commission (SEC) has rejected every Bitcoin ETF application. 

In short, investors give the GBTC cash. The fund buys BTC and represents it with shares. Investors can then pick when to sell or buy more GBTC shares, as it tracks Bitcoin’s price. The problem is that the fund has a relatively high up-front cost, requiring a minimum of $50k investment and a 2% annual fee.  

If the demand for bitcoins is high, investors will pay more for GBTC shares than actual bitcoins as net asset value (NAV). Otherwise, they trade at a discount. The last time GBTC traded at a high premium was in December 2020, at 35%. 

From February 2021 to the present, GBTC has been consistently in the discount to NAV territory, currently at -33%. Yet, BlackRock’s application was a major boost over the last week.

(Click on image to enlarge)

Image courtesy of Trading View

However, we must remember that GBTC also filed a lawsuit against the SEC for rejecting its ETF application. The same watchdog agency recently sued Coinbase as an unregistered broker for offering ‘crypto asset security.’ But Coinbase is also BlackRock’s selected custodian for the fund the SEC is yet to approve.

What Makes BlackRock’s Bitcoin Venture Different?

The SEC has consistently bulwarked against spot-traded Bitcoin ETFs, rejecting dozens of applicants. Although the official reasoning is that the crypto market is too unregulated, the prevailing speculation is that the SEC doesn’t want to be responsible for opening capital floodgates into Bitcoin. 

Referring to the lawsuit against the SEC on the What Bitcoin Did podcast, Grayscale Investments’ CEO Michael Sonnenshein noted that conversion of GBTC into an ETF would close the discount to NAV gap, bringing in a “couple of billion dollars.” 

So far, the presiding judge panel has expressed skepticism on SEC’s reasoning for rejecting this conversion. In particular, Judge Neomi Rao found it puzzling that the SEC approved Bitcoin futures ETFs but not spot-traded ones.

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